1. Find Discount factor for Interest rate i = 10%, Compounded (n) = 1
Solution:
`i=10%=0.1` per year (Interest rate)
`n=1` years (Number of periods)
Discount Factor
`DF=1/(1+i)^n`
`=1/(1+0.1)^1`
`=1/(1.1)^1`
`=1/(1.1)`
`=0.9091`
2. Find Discount factor for Interest rate i = 10%, Compounded (n) = 2
Solution:
`i=10%=0.1` per year (Interest rate)
`n=2` years (Number of periods)
Discount Factor
`DF=1/(1+i)^n`
`=1/(1+0.1)^2`
`=1/(1.1)^2`
`=1/(1.21)`
`=0.8264`
Find Discount factor for Interest rate i = 10%, Compounded (n) = 3
Solution:
`i=10%=0.1` per year (Interest rate)
`n=3` years (Number of periods)
Discount Factor
`DF=1/(1+i)^n`
`=1/(1+0.1)^3`
`=1/(1.1)^3`
`=1/(1.331)`
`=0.7513`
This material is intended as a summary. Use your textbook for detail explanation.
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